Rare's Hickey: Eat-in focus vs. takeout helps beef up bottom line

Nation's Restaurant News, March 5, 2001 by Richard Papiernik

Philip J. Hickey Jr. is one of those operators who believe that a full-service restaurant should put its best plate on the table and not in a plastic foam container.

Hickey, chairman and chief executive of Atlanta-based Rare Hospitality International Inc., doesn't completely rule out takeout.

If patrons ask, of course, Rare's 180-odd restaurants won't hesitate to package their victuals for the trip home.

Let's just say that Hickey is not enthusiastic about a meals-to-go program for the company's three major brands -- LongHorn Steakhouse, Bugaboo Creek and The Capital Grille.

So the company has no marketing push to pick up the pace of the packaging even though some casual-dining competitors, such as Outback Steakhouse and Brinker International's Chili's restaurants, have moved into takeout in a big way.

Hickey insists that the in-house dining experience provides the best stage for experiencing the ambience of the restaurant, the attentiveness of the staff and especially the realization that the entree is "on the plate, hot."

Some or us recall flow he previously had told us about his passion for providing his customers with a palate-pleasing meal at the restaurant rather than in their office or via home delivery.

"We don't want it to be sliding around in Styrofoam for their first LongHorn experience," he proclaimed in an earlier interview.

It's that kind of passion that appears to be paying off handsomely for Rare Hospitality on the balance sheet and in the trading of the company's stock on Wall Street.

Rare Hospitality earnings for the fiscal year ended Dec. 31 were up 81 percent, to $23.26 million, despite a $1 million charge for litigation settlements.

In fiscal 1999 the company launched a program to weed out underperforming restaurants from its Longhorn system. After writing down those assets with a $1.8 million charge against earnings, Rare generated fiscal 1999 profits of $12.84 million.

Last July the company bought out the ownership interests of two joint-venture partners in its Florida and North Carolina markets. In the Tampa market Rare bought back the 10-percent interest held in five LongHorn Steakhouse units for about $1.2 million, including $312,000 in cash and 48,492 shares of Rare stock.

The North Carolina partners, who had a 33-percent ownership in 14 LongHorn units, received about $9 million -- $3 million in cash plus 307,035 shares.

Rare also was able to complete the year with 17 additional new openings, bringing its total number of LongHorn units to 135. LongHorn sales for fiscal 2000 were up nearly 26 percent, to $327.82 million, from $260.51 million in the prior year. In the fourth quarter of 2000, sales grew 25 percent, to $84.96 million. Comp-store sales increased 6.3 percent for the quarter and 5.6 percent for the year.

At The Capital Grille, the addition of one restaurant brought the total to 12 units. Same-store sales in the fourth quarter were up 7.6 percent. Annual sales grew 13 percent, to $65.39 million.

Bugaboo Creek's annual sales increased 10.6 percent, to $62.96 million. Same-store sales were up 2.7 percent for the quarter and 4.5 percent for the year.

Rare's specialty concepts, trading under the names Hemenway's Seafood Grille & Oyster Bar and The Old Grist Mill Tavern, generated annual sales of $7.47 million, up 7.4 percent for the year.

Rare's chief financial officer, W. Douglas Benn, told analysts at a briefing on the fiscal 2000 results that a same-store-sales growth of 2 percent to 3 percent is projected in 2001 for LongHorn Steakhouse and 3 percent to 4 percent for The Capital Grille.

"We are projecting same-store sales at Bugaboo Creek to be slightly positive," he said.

Expansion plans for 2001, according to Benn, include opening 18 to 21 new Longhorn units on a loose schedule of nine in the first quarter, two to three in the second quarter and the rest in the last half of the year. Three of The Capital Grille units are expected to open in the first half of this year. One Bugaboo Creek unit is slated for opening late this year.

Fiscal 2000 consolidated revenue increased 21 percent, to $464.03 million, compared with $382.47 million for the previous year.

Adding some revenue growth at LongHorn early in fiscal 2000 was a 1-percent price increase. An additional 3 percent was initiated in December 2000.

Also adding to the growth was a "Dressed Up Steak" promotion, including a filet and a strip steak, at the high-price end of the menu. The item was so well received, the company said, that the steak became part of the permanent menu.

Fourth-quarter revenue increased 19 percent, to $120.46 million, vs. $100.9 million in the year-earlier fourth period. Earnings for that latest quarter doubled, to $6.55 million, from $3.28 million the year before.

On a fully diluted basis, earnings per share for the year were $1.20, compared with 68 cents for the previous year. Fourth-quarter earnings were 33 cents, vs. the year-earlier 17 cents. Rare adjusted the fiscal 1999 and its fourth quarter to account for a 3-for-2 stock split in September 2000.